Oil marketing companies are beginning to show a greater interest in the ethanol-blended petrol (EBP) programme, with the 5 per cent blending target set to be achieved this year.

This could be because ethanol-blending has resulted in greater savings, given the upward trajectory of global crude prices. Sugar manufacturers are also gearing up to meet the demand from OMCs.

For the current ethanol supply year — it began on December 1, 2017 and will end on November 30, 2018 — OMCs are contracted to buy 163 crore litres of ethanol. This translates to a blending rate of 5 per cent, precisely meeting the target under the EBP programme. OMCs have already lifted 113 crore litres of ethanol from the sugar mills as on September 10.

For the next ethanol supply year 2018-19, OMCs have indicated a requirement of 329 crore litres of ethanol — more than double that of this year — which will result in a blending rate of 10 per cent.

Saving on costs

While earlier the OMCs seemed reluctant to meet the EBP target, things seem to be falling in place now. “There is no legal mandate on oil marketing companies even now, but the Centre’s push has become stronger and OMCs are coming on board...,” says Abinash Verma, Director-General, Indian Sugar Mills Association.

One reason for the higher compliance of OMCs could be the savings through ethanol-blending at current prices.

The depot price of petrol in Delhi is ₹40.45 per litre. Adding excise duty, dealer’s commission, and VAT, the price at the pump is ₹80.73/litre.

The price of a litre of ethanol from C-heavy molasses is ₹40.85. On adding transportation cost, other charges, GST and VAT, the price at the depot works out to ₹61.98/litre. As OMCs also sell blended petrol at the price of regular petrol, the difference of ₹18.76/litre is their profit.

In all, OMCs could realise a profit of ₹3,000 crore from EBP this year.

Margins may shrink

However, the savings from selling blended petrol could reduce in the next year (December 2018 – November 2019), due to the increase in ethanol prices.

For the next year, the Cabinet Committee on Economic Affairs (CCEA) has priced C-heavy molasses higher at ₹43.46/litre (₹40.85/litre) and B-heavy molasses, too, at ₹52.43/litre (₹47.13/litre).

Assuming that all ethanol offered next year by sugar mills is from C-heavy molasses, the cost of each litre of ethanol for OMCs will be ₹65.46. Provided oil prices remain constant, OMCs will save ₹15.27/litre. If all ethanol is from B-heavy molasses, the cost of each litre of ethanol will be ₹77.42 and the savings will be ₹3.3/litre.

Sugar industry veterans, however, think that at best, only a fourth of the total requirement may be met from B-heavy molasses. Therefore, the saving next year is likely to be higher than ₹3.3/litre.

All the above calculations assume crude at around $79-80/barrel and depot price of petrol at around ₹40.45/litre. If crude price drops, ethanol blending may not be as remunerative for OMCs.

Sugar mills have it sweet

Sugar mills are happy with the price for ethanol now. For ethanol from B-heavy molasses, the proposed price of ₹52.43/litre compensates sufficiently for the loss in revenue from sugar.

Also, the government has asked OMCs to fix realistic transportation charges, ensuring that long-distance transport of ethanol is not disincentivised. The mills are thus keen on adding new capacities to manufacture ethanol.

After the government announced an interest subsidy on loans in June for adding capacity to produce ethanol, over 150 applications have been made, says Abinash Verma.

“The soft loan of ₹4,400 crore offered by the government is expected to translate to 100 crore litres of ethanol.”

The total ethanol production capacity of the sugar industry now stands at 227 crore litres.